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Librarian of Congress Publishes New Digital Era Mechanical Royalty Rates

January 4, 2010

On Monday, January 26, 2009, the Librarian of Congress published the final determination of the Copyright Royalty Board (CRB) establishing the new schedule of mechanical royalty rates and terms for the U.S. These include the first-ever statutory royalties for on-demand streams, limited downloads, and ringtones, as well as for physical recordings and permanent downloads. The participants to the proceeding now have 30 days to appeal the determination before the rates are binding. In the event no participant appeals, the rates and terms for physical recordings and permanent digital downloads will go into effect on March 1, 2009. Since these rates are the same as the previous rate, 9.1¢, you will not see any changes to your licensing or royalty statements.

As per the settlement agreement between the NMPA, RIAA, and DiMA that was accepted by the CRB, the rates for on demand streams and limited downloads will be retroactive to 2001, when HFA began licensing these types of services. The final determination requires the licensees of interactive streams and limited downloads to report these royalties in their quarterly reports beginning on July 26, 2009. This will include the payment of all of the retroactive royalties for music delivered through these types of subscription services from inception though first quarter 2009. After that, HFA expects the licensees to report usage and royalties on the regular schedule of 45 days after the close of the calendar quarter in which distributions are made (August 15, November 15, February 15, and May 15). To date, HFA has not issued any licenses for ringtones that reference a statutory rate, so no adjustments will be required.

Concurrently with the publication of the CRB's final determination, the Register of Copyrights issued its review of the CRB determination. The Register determined that the CRB had made a mistake by failing to review the legality of the participants' settlement agreement and that the CRB has continuing jurisdiction to correct any errors identified by the Register. The Register went on to identify additional errors related to the scope of the compulsory license under Section 115 of the U.S. Copyright Act. Although we hope that all parties will abide by the settlement and the CRB's final determination, the Register's opinion and the ability of the participants (NMPA, RIAA, and DiMA) to appeal leaves open the possibility of further refinements to the CRB's ruling. HFA, however, continues to prepare for the final adoption of these rates.

We are working with our subscription service licensees on these new licensing and reporting requirements. We expect to introduce new royalty reports for subscription service royalties.

The new schedule of mechanical rates, which will be in effect though December 31, 2012, is:

Physical recordings: 9.1 ¢ for recordings five minutes or less; for recordings over 5 minutes, 1.75 ¢ for each minute, rounded up.

Permanent Digital Downloads: 9.1 ¢ for recordings five minutes or less; for recordings over 5 minutes, 1.75 ¢ for each minute, rounded up.

Mastertone Ringtones: 24¢ (for non-derivative uses)

Interest on late payments: 1.5% per month, or 18% per year

Rates for limited downloads and on-demand streams vary by service offering and are calculated based on licensee revenue, licensee content cost, the number of subscribers and other variables. We will provide more details about these calculations when the rates become binding.

Of course, we will continue to update you as more definitive information regarding new mechanical rates becomes available.

If you have any questions, please do not hesitate to contact HFA Publisher Services at 212-834-0100 or email publisherservices@harryfox.com.


The Harry Fox Agency, Inc.
601 West 26th Street Suite 500
New York NY 10001

212-834-0100
publisherservices@harryfox.com

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